Coinbase to Pay Users 1.25% Interest on USDC Stablecoin Holdings

You don’t have to be a trader on Coinbase to make a profit.

Starting Wednesday, customers of the San Francisco-based cryptocurrency exchange can earn interest on their holdings of the dollar-pegged stablecoin USDC. The annual percentage yield (APY) is 1.25 percent.

“We’re trying to build more ways for customers to grow their wealth on Coinbase,” said Coinbase product manager Paul Katsen, adding:

“One of the things we know is a bad customer experience is having to move your money back and forth from Coinbase to a bank account [to] earn a little bit of interest in the bank account. We’re trying to bring some of these experiences together but make them crypto-first and on Coinbase.”

Users of the exchange with at least one dollar’s worth of USDC in their accounts will automatically begin to accrue rewards on their holdings, with no additional cost or fees.

Paid out to users on a monthly basis, all rewards earned on Coinbase can be tracked in real-time and subsequently used instantaneously to buy other cryptocurrencies listed on the exchange.

“The user experience is really super smooth and simple,” said Coinbase director of product Max Branzburg. “As soon as you have USDC in your account, you start earning rewards and you can see reward counting up in real-time so you know at any given time exactly how much you’re earning. You can use that right then and there on the platform to buy any other crypto.”

When asked how Coinbase was financing this initiative, Branzburg explained the company would be pulling from different pre-existing revenue streams. "From trading, from [Coinbase's] custody business, from treasury management, investment activity, etc.," he said.

"We can pull from the profits we generate as a business to reward our customers for storing their assets on the platform, " Branzburg said, adding:

"We're fortunate to be able to do that as a profitable business."

Relating to how the USDC Rewards program compares to existing bank rates in the U.S., Branzburg noted that a 1.25 percent interest rate on holdings of U.S. dollars is “15 times more than the national average or what people might get through a [traditional] savings account.”

While the rates are lower than what a user could benefit from on decentralized financial (DeFi) applications such as Compound or dYdX, Branzburg said the USDC Rewards program makes earning interest on USDC exceptionally easy for consumers since they no longer have to move money into a separate application or account.

“Particularly for developing economies, giving the ability for people to hold USD-equivalent funds and get something like [1.25 percent] interest a year … is really tremendous,” said Joao Reginatto, director of product management at crypto finance startup Circle, which launched USDC in partnership with Coinbase. “We see a lot of demand from consumers in developing economies, especially.”

‘Top of mind’

Outside of Coinbase, Circle is currently the only other approved entity to issue new USDC coins.

Together, Coinbase and Circle make up the CIRCLE consortium meant to drive adoption for the USDC stablecoin and provide a governance framework for its continued development.

Between the two startups, over 1 billion dollars worth of USDC has been issued since Sept. 26, 2018https://www.centre.io/pdfs/usdc-report-sept-2019.pdf.

Beyond USDC, Coinbase’s Branzburg says similar programs could exist in the future for other cryptocurrencies on the exchange.

“We see this as the beginning of long-term investment in generating rewards for customers. … We’ll continue to explore additional ways to bring even more rewards to our customers,” said Branzburg, adding:

“We’re considering different assets and different geographies. Continuing to create more value for our customers is always top of mind for Coinbase.”

USDC logo image via Shutterstock